The bad debt expense taken on the allowance method is

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Unformatted text preview: 02099 Type1 M/C A-D 34. CPA-02099 ARE Nov 94 #32 Corr Ans: C PM#47 R 3-01 Page 25 For the year ended December 31, 1993, Kelly Corp. had net income per books of $300,000 before the provision for Federal income taxes. Included in the net income were the following items: Dividend income from an unaffiliated domestic taxable corporation (taxable income limitation does not apply and there is no portfolio indebtedness) Bad debt expense (represents the increase in the allowance for doubtful accounts) $50,000 80,000 Assuming no bad debt was written off, what is Kelly's taxable income for the year ended December 31, 1993? a. b. c. d. $250,000 $330,000 $345,000 $380,000 CPA-02099 Explanation Choice "c" is correct. Book net income Nondeductible bad debt expense Dividends received deduction $300,000 80,000 (35,000) $345,000 Choice "a" is incorrect. The bad debt expense taken on the allowance method is disallowed. For tax purposes, the corporation must use the direct write-off method. In addition, Kelly Corp. is allowed a 70% dividends received deduction. Choice "b" is incorrect. Only 7...
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